about the Authors was an auditor with Price Waterhouse (now PricewaterhouseCoopers) and a financial administrator at the University of Chicago. She received her B.S. from Pennsylvania State University, her M.B.A. from DePaul University, and her Ph.D. from the University of Michigan; she is also a CPA. Robert Libby Robert Libby is the David A. Thomas Professor of Management at the Johnson Graduate School of Management at Cornell University, where he teaches the introductory financial accounting course. He previously taught at the University of Illinois, Pennsylvania State University, University of Texas at Austin, University of Chicago, and University of Michigan. He received his B.S. from Pennsylvania State University and his M.A.S. and Ph.D. from the University of Illinois; he is also a CPA. Bob is a widely published author specializing in behavioral accounting. He was selected as the AAA Outstanding Educator in 2000. His prior text, Accounting and Human Information Processing (Prentice Hall, 1981), was awarded the AICPA/AAA Notable Contributions to the Accounting Literature Award. He received this award again in 1996 for a paper. He has published numerous articles in the Journal of Accounting Research; Accounting, Organizations, and Society; and other accounting journals. He is past Vice President-Publications of the American Accounting Association and is a member of the American Institute of CPAs and the editorial boards of The Accounting Review; Accounting, Organizations, and Society; Journal of Accounting Literature; and Journal of Behavioral Decision Making. Patricia A. Libby Patricia Libby is Chair of the Department of Accounting and Associate Professor of Accounting at Ithaca College, where she teaches the undergraduate financial accounting course. She previously taught graduate and undergraduate financial accounting at Eastern Michigan University and the University of Texas. Before entering academe, she Pat conducts research on using cases in the introductory course and other parts of the accounting curriculum. She has published articles in The Accounting Review, Issues in Accounting Education, and The Michigan CPA. She has also conducted seminars nationwide on active learning strategies, including cooperative learning methods. Daniel G. Short Daniel Short is Professor of Accounting and Dean of the M.J. Neeley School of Business at Texas Christian University in Fort Worth, Texas. Formerly he was Dean at the Richard T. Farmer School of Business at Miami University (Ohio) and the College of Business at Kansas State University. Prior to that, he was Associate Dean at the University of Texas at Austin, where he taught the undergraduate and graduate financial accounting courses. He also taught at the University of Michigan and the University of Chicago. He received his undergraduate degree from Boston University and his M.B.A. and Ph.D. from the University of Michigan. Dan has won numerous awards for his outstanding teaching abilities and has published articles in The Wall Street Journal, The Accounting Review, the Journal of Accounting Research, and other business journals. He has worked with a number of Fortune 500 companies, commercial banks, and investment banks to develop and teach executive education courses on the effective use of accounting information. Dan has also served on boards of directors in several industries, including manufacturing, commercial banking, and medical services. He is currently on the economic development committee of the Fort Worth Chamber of Commerce. V III The proven favorite O ver four editions, authors Bob Libby, Pat Libby, and Dan Short have made Financial Accounting into the best-selling book on the market*. How? By helping the instructor and student to become partners in learning, using a remarkable learning approach that keeps students engaged and involved in the material from the first day of class. * Monument Information Resource, 2003 Report Financial Accounting’s distinctive focus company method motivates students by involving them in the business decisions of a real company, demonstrating how financial accounting makes a difference in the success of a firm. That, combined with pedagogical features and technology assets that serve a variety of learning styles, makes Libby/Libby/Short the textbook that both students and instructors agree is the best of its kind on the market today. IV of students and instructors alike. Financial Accounting maintains its leadership by focusing on three key attributes: REVELANCE. Libby/Libby/Short’s trademark focus company approach is your best tool for demonstrating the relevance of financial accounting topics. Ethics continues to be a crucial topic within accounting, and Financial Accounting integrates coverage of ethical issues throughout the book. Furthering its real-world applicability, the end-of-chapter cases tie into the bundled annual report from Pacific Sunwear of California and the contrasting report from American Eagle Outfitters. This gives students valuable practice in reading and interpreting real financial data. Finally, Real-World Excerpts expand important chapter topics with insight into how real firms use financial accounting to their competitive advantage. Clarity. Do students complain that their textbook is hard to read? They don’t if they’re reading Financial Accounting. Libby/Libby/Short’s clean, engaging writing is cited as a consistent strength by both instructors and students. In addition, the organization of the material is constantly refined to ensure maximum readability for students and flexibility for teachers. Technology Aides. Today’s students have divergent learning styles and numerous time commitments, and they want technology supplements that help them study more efficiently and effectively. McGraw-Hill’s Homework Manager and Homework Manager Plus, Topic Tackler, and ALEKS for Financial Accounting provide students with three powerful tools tied directly to Financial Accounting, fifth edition, that will help them maximize their study time and make their learning experience more enjoyable. In addition, a new Algorithmic Test Bank allows instructors to create an infinite number of algorithm-generated quizzes and test assignments. Libby/Libby/Short’s Financial Accounting is the proven choice for presenting financial accounting in a clear, relevant approach that keeps students engaged throughout your course. Read on for more insight into what has made this textbook such a success with faculty and students. V The Financial Accounting Libby/Libby/Short’s Digital Learning System complements the textbook every step of the way, giving students the extra help they need while providing instructors with tools for teaching a stimulating and rewarding class. Topic Tackler Plus DVD For today’s technologically savvy students, Topic Tackler Plus is a DVD tutorial that offers a virtual helping hand in understanding the most challenging topics of the financial accounting course. Through a step-by-step sequence of video clips, audio-narrated slides, interactive practice exercises, and selftests, Topic Tackler offers help on two key topics for every chapter, keeping your students engaged and learning as they read. Topic Tackler Plus content is also accessible from the textbook’s Online Learning Center, allowing students to access these powerful resources anywhere, at any time. Video clips provide real-world perspectives from a variety of accounting experts. exercises Video Clips Audio-narrated slide shows offer step-by-step coverage of challenging topics and make a great resource for review. Many also feature animations. Narrated slides Fun, interactive exercises help students remember key terminology. Self-grading quizzes cover all of the main topics, providing an ideal way to brush up before a test. SELF-TESTS Concepts appearing in the text that receive additional treatment in Topic Tackler are marked with a unique icon. VI Digital Learning System Excel Templates for use with the Annual Report Cases If you’re going to work in accounting (or business in general), you have to know Microsoft Excel. Students use the real annual reports of American Eagle Outfitters and Pacific Sunwear of California with accompanying Excel Templates to manipulate real-world data and solve problems. These assignments allow students to experience problem solving as it truly happens in real companies. (The annual reports are found in the textbook appendixes and on this DVD. Prepared by Beth Kern at Indiana UniversitySouth Bend, the Excel Templates are found on the DVD and on the book’s website.) Algorithmic Test Bank If you’ve ever thought that no test bank, however well made, could have all of the problems you could possibly need, think again. The Algorithmic Test Bank available with Libby/Libby/Short includes a problem generator that replicates the structure of text problems while populating them with fresh numbers. Create unique versions of every homework assignment, every quiz, every test—or use it to provide dozens of similar but distinct problems for students to practice on. Narrated Slides The next best thing to a private lecture, Libby/Libby/Short’s narrated slides combine spoken narration, animation, and easy navigability to provide a comprehensive, easy-to-follow study aid for students brushing up for a quiz or a test. Every chapter has its own presentation that closely follows that chapter’s organization, even reproducing key chapter figures and exhibits. VII Proven Learning Solutions Financial Accounting offers a host of pedagogical tools that complement the ways you like to teach and the ways your students like to learn. Some offer information and tips that help you present a complex subject; others highlight issues relevant to what your students read online or see on television. Either way, Financial Accounting’s pedagogical support will make a real difference in your course and in your students’ learning. Financial Analysis These features tie important chapter concepts to real-world decision-making examples. They also highlight alternative viewpoints and add to the critical thinking and decision-making focus of the text. Self-Study Quizzes This active learning feature engages the student, provides interactivity, and promotes efficient learning. Research shows that students learn best when they are actively engaged in the learning process. These quizzes ask students to pause at strategic points throughout each chapter to ensure that they understand key points before moving ahead. International Perspective These sections highlight the emergence of global competition and resulting business issues throughout the text as well as the endof-chapter material. VIII Real-World Excerpts These insightful excerpts appear throughout the text and include annual report information from the focus companies, as well as numerous other companies, news articles from various publications, analysts’ reports, 10-K forms, press releases, and First Call notes. Key Ratio Analysis Students will be better prepared to use financial information if they learn to evaluate elements of financial performance as they learn how to measure and report them. For this reason, we include relevant key ratios in each chapter in Key Ratio Analysis sections. Each Key Ratio Analysis box presents ratio analysis for the focus company in the chapter as well as for comparative companies. Cautions are also provided to help students understand the limitations of certain ratios. A Question of Ethics These boxes appear throughout the text, conveying the importance of acting responsibly in business practice. Focus on Cash Flows Each of the first 12 chapters includes a discussion and analysis of changes in the cash flow of the focus company and explores the decisions that caused those changes. The early and consistent coverage of cash flows encourages students to think more critically about the decisions they will face as managers and the impact those decisions will have on the company’s cash flow. IX Proven Learning Solutions Organization of the Chapter Schematic A unique feature of Libby/Libby/Short, this visual framework provides a powerful visual schematic of each chapter’s content, easily enabling students to find exactly the chapter topic or concept they’re looking for. All Journal Entries Tied to the Accounting Equation Journal entries marked with (A), (L), (SE), (R), (E), or (X, if a contra-account) and plus and minus signs in early chapters assist students in transaction analysis. In addition, following each journal entry is a summary of the effects of the transaction on the fundamental accounting equation. X Flexible End-of-Chapter Content and Organization Each chapter is followed by an extensive selection of end-of-chapter assignments that examine single concepts or integrate multiple concepts presented in the chapter, arranged by level of difficulty and in learning objective order. To maintain the real-world flavor of the chapter material, they are often based on other real domestic and international companies and require analysis, conceptual thought, calculation, and written communication. Assignments suitable for individual or group written projects and oral presentations are included in strategic locations. • • • • • • • • • • • Chapter Take-Aways: bulleted end-of-chapter summaries that compliment the learning objectives outlined at the beginning of the chapter. Key Ratios: summary of the key ratios presented in the chapter. Key Terms: page referenced to the chapter text. Finding Financial Information: highlights the chapter’s key concepts, numbers, and totals in an easy-to-review graphic. The graphic includes Balance Sheet, Income Statement, Statement of Cash Flows, and Note Information. Questions Multiple Choice Mini-Exercises Exercises Problems: cross-referenced in blue to the Alternative Problems. Alternative Problems: similar in level and content to the end-of-chapter problems Cases and Projects: include Annual Report Cases, Financial Reporting and Analysis Cases, Critical Thinking Cases, and Financial Reporting and Analysis Projects XI What’s New in the Fifth Edition? The primary goals of the fifth edition revisions are to provide instructors with more flexibility in key topical coverage; to simplify explanations of complex topics; to make the end-of-chapter material match instructor needs better; and to accurately reflect the exciting changes taking place in the accounting environment. As a result, the authors have revised at least 50 percent of the end-of-chapter material in each chapter, as well as making the detailed revisions as noted in the following sections. 1 3 Chapter 1 •Updated coverage of recent accounting scandals •Coverage on new Sarbanes- Oxley requirements •New exhibit (Exhibit 1.7) summarizing the four basic financial statements •New International Perspective feature discussing International Accounting Standards Board •Substantially revised end-of-chapter exercises and problems using new real-world companies and numbers •New annual report cases and new financial reporting cases Chapter 3 •Updated opening discussion for Papa John’s International •New International Perspective discussing foreign financial statements •Updated articles and ratio comparisons •Added summary chart to enhance understanding of how statements are linked •Clarified requirement and transactions •Upgraded Team Project to follow concept of a continuous project from prior and subsequent chapters •Substantially revised end-of-chapter exercises and problems using new real-world companies and numbers •New annual report cases 2 4 Chapter 2 •Updated opening discussion for Papa John’s International •Moved financial leverage ratio later in the chapter •Enhanced discussion and visuals within Key Ratio Analysis feature •Updated articles and ratio comparisons •Substantially revised end-of-chapter exercises and problems using new real-world companies and numbers •Upgraded Team Project to follow concept of a continuous project from prior and subsequent chapters •New annual report cases XII Chapter 4 •Updated opening discussion for Papa John’s International •Added new section on Analysis of Adjusting Entries •New art integrated into discussion of deferrals and accruals •Realigned discussion by Revenues (deferred and accrued) and Expenses (deferred and accrued) in fifth edition versus Deferrals (revenues and expenses) and Accruals (revenues and expenses) in fourth edition. •Added summary exhibits— Exhibits 4.3 and 4.4—for deferrals and accruals to highlight the differences in the earning of revenue (or incurring of expense) versus cash receipts (or payments) •Expanded introductory summary of accounts to be adjusted in the Papa John’s illustration to emphasize the identification of deferrals and accruals and the timing of cash receipts and payments •Rearranged illustrations to follow revisions made to text •Simplified account titles to follow more closely with end-of-chapter account titles (e.g., Supplies Expense instead of General and Administrative Expense) •Updated articles and ratio comparisons •Substantially revised end of-chapter exercises and problems using new real-world companies and numbers •Upgraded Team Project to follow concept of a continuous project from prior and subsequent chapters •Included new discussion of International Accounting Standards Board •Added new self-study quizzes •Simplified financial statement presentations •Substantially revised end of chapter using new real companies and numbers •Added new financial reporting and ethics cases 6 Chapter 6 •New focus company (Deckers Outdoors, maker of Teva sandals) •New self-study quiz on accounting for doubtful accounts •New self-study quiz on aging of accounts receivable •Introduced new, simpler presentation of aging method for estimation of doubtful accounts •Substantially revised end-of-chapter exercises and problems using new real-world companies and numbers 5 7 Chapter 5 •Added coverage of recent accounting scandals and new Sarbanes-Oxley requirements •Added new exhibits explaining the corporate governance and accounting communication process •Introduced new discussion of common-size income statements Chapter 7 •Reorganized discussion of effects of inventory methods on financial statement analysis moved to follow ratio discussions. •Simplified presentation of cost of goods sold calculations •Introduced new contrast company Ducati Motorcycles •New step-by-step self-study quizzes 7 What’s New? •Added new basic exercises on the effects of cost flow assumptions on cost of goods sold and ending inventory added to end of chapter material •Substantially revised end-of-chapter exercises and problems using new real-world company data (Ford, Kodak, Dell, American Eagle Outfitters, etc.) •Upgraded Team Project to follow concept of a continuous project from prior and subsequent chapters value computations •Revised payroll accounting discussion •Provided new discussion showing relationship between operating activities and the creation of current liabilities •Expanded discussion of lease liabilities •Substantially revised end-of-chapter exercises and problems using new real-world companies and numbers and expanded number of present value problems •Upgraded Team Project to follow concept of a continuous project from prior and subsequent chapters 13 payments to an annual basis to reduce repetitive computations •Expanded discussion of how interest expense is reported •Substantially revised end of-chapter exercises and problems •Upgraded Team Project to follow concept of a continuous project from prior and subsequent chapters Chapter 13 •Revised chapter to be used any time after Chapter 4 •Revised chapter to be used to cover direct, indirect, or both methods for presenting the Operating section •Simplified presentation of the steps involved in preparing the operating section using the indirect method •Expanded use of T-accounts to explain indirect method •Added new problems with data that can be assigned for direct and/or indirect method •Added Enron-based ethics case •Substantially revised end of-chapter exercises and problems using new real-world companies and numbers •Upgraded Team Project to follow concept of a continuous project from prior and subsequent chapters 11 8 10 12 14 9 Chapter 8 •Updated all articles and real-world information •Clarified discussions/ illustrations on revenue and capital expenditures, depreciation concepts, depreciation methods, and amortization •Substantially revised end-of-chapter exercises and problems using new real-world companies and numbers •Upgraded Team Project to follow concept of a continuous project from prior and subsequent chapters Chapter 9 •New focus company (Starbucks) •Introdcued new chapter supplements—using Excel and Future Value Concepts to compute present values •Integrated Excel commands in discussion of present Chapter 10 •Moved discussion of bond basics into new section •Focused discussion of types of bonds on only the most commonly used bonds •New chapter supplement— using Excel to determine the present value of bonds •Integrated Excel commands into discussion of computing the value of bonds •Expanded amortization schedules to include full life of bonds •Updated discussion of early retirement of bonds to include rule change •Reorganized discussion of straight-line and effective interest amortization to permit users to easily cover either or both methods •Changed all interest Chapter 11 •Updated real-world excerpts •Removed coverage of stock issued for noncash assets so focus is now on the most common transactions •Substantially revised end of-chapter exercises and problems using new real-world companies and numbers •Upgraded Team Project to follow concept of a continuous project from prior and subsequent chapters Chapter 12 •Significantly updated all real world excerpts and articles •Added a marginal visual •Substantially revised end of-chapter exercises and problems using new real-world companies and numbers •Upgraded Team Project to follow concept of a continuous project from prior and subsequent chapters Chapter 14 •Updated focus and comparison companies •Revised financial analysis of focus and comparison companies •Substantially revised end of-chapter exercises and problems using new real-world companies and numbers •Upgraded Team Project to follow concept of a continuous project from prior and subsequent chapters XIII Teaching With Technology classroom; say hello to the power and flexibility you’ve been waiting for in creating assignments. McGraw-Hill’s Homework Manager is also a useful grading tool. All assignments can be delivered over the Web and graded automatically, with the results stored in your private gradebook. Detailed results let you see at a glance how each student does on an assignment or an individual problem—you can even see how many tries it took the student to solve it. Learn more about McGraw-Hill’s Homework Manager by referring to the front cover insert. Online Learning Center www.mhhe.com/libby5e For instructors, Libby’s Online Learning Center contains the Instructor’s Resource Manual, PowerPoint slides, Solutions Manual, Excel Templates tied to the end-of-chapter material, and the Annual Report Cases Templates, all organized by chapter. There are also links to professional resources. In addition, for students and instructors, there are two appendixes linked to the text material, check figures, articles tied to end-of-chapter material, Web links to the focus company financial statements, and McGraw-Hill’s Homework Manager (see the next item). Instructors can pull all of this material into their PageOut course syllabus or use it as part of another online course management system. The student section of the site includes (in addition to the preceding elements) Topic Tackler Plus content (see page VI), self-quizzes, learning objectives, PowerPoint slides, chapter outlines, chapter take-aways, and digital flashcards. McGraw-Hill’s Homework Manager ISBN 978-007322614-9 (ISBN 0073226149) McGraw-Hill’s Homework Manager is a Web-based supplement that duplicates problem structures directly from the end-ofchapter material in Financial Accounting, fifth edition, using algorithms to provide a limitless supply of online self-graded practice for students or assignments and tests with unique versions of every problem. Say goodbye to cheating in your XIV McGraw-Hill’s Homework Manager Plus ISBN 978-007322587-6 (ISBN 0073225878) McGraw-Hill’s Homework Manager Plus gathers all of Financial Accounting’s online student resources under one convenient access point. Combining the power and flexibility of McGrawHill’s Homework Manager with other proven technology tools, McGraw-Hill’s Homework Manager Plus provides the best value available for the student eager to embrace the full benefits of online study and review. In addition to McGraw-Hill’s Homework Manager, students may also access: NetTutor Only available through McGraw-Hill’s Homework Manager Plus, NetTutor connects students with qualified tutors online. Students can work with an online tutor in real time, or post a question to be answered within 24 hours. Homework Manager Plus adopters receive unlimited tutoring time on NetTutor. Interactive Online Version of the Textbook In addition to the textbook, students can rely on this online version of the text for a convenient way to study. This interactive web-based textbook contains hotlinks to key definitions and real company websites and is integrated with Homework Manager to give students quick access to relevant content as they work through problems, exercises, and practice quizzes. Technology r wa e n Ge er al L ed ger Soft Carol Yacht’s General Ledger and Peachtree Complete 2007 CD-ROM Carol Yacht’s General Ledger Software is McGraw-Hill/Irwin’s custom-built general ledger package. Carol Yacht’s General Ledger can help your students master every aspect of the general ledger, from inputting sales and cash receipts to calculating ratios for analysis or inventory valuations. Carol Yacht’s General Ledger allows students to review an entire report and then double-click any single transaction to review or edit it. The report will then be updated on the fly to include the revised figures. When it comes to learning how an individual transaction affects the outcome of an entire report, no other approach matches that of Carol Yacht’s General Ledger. Also on Carol Yacht’s General Ledger CD, students receive the educational version of Peachtree Complete 2007, along with templates containing data for many of the text exercises and problems. Familiarity with Peachtree Complete will be essential for students entering the job market, and Carol Yacht’s Peachtree templates for use with Libby/Libby/Short’s Financial Accounting, fifth edition, ensures that they get plenty of practice. Students can use Carol Yacht’s General Ledger to GL solve numerous problems from the textbook; the data for these problems are already included on Carol Yacht’s General Ledger CD-ROM. You can even populate Carol Yacht’s General Ledger with your own custom data. ALEKS® ALEKS (Assessment and LEarning in Knowledge Spaces) delivers precise, qualitative diagnostic assessments of students’ knowledge, guides them in the selection of appropriate new study material, and records their progress toward mastery of curricular goals in a robust classroom management system. ALEKS interacts with the student much as a skilled human tutor would, moving between explanation and practice as needed, correcting and analyzing errors, defining terms and changing topics on request. By sophisticated modeling of a student’s knowledge state for a given subject, ALEKS can focus clearly on what the student is most ready to learn next. When students focus on exactly what they are ready to learn, they build confidence and a learning momentum that fuels success. ALEKS Math Prep for Accounting provides coverage of the basic math skills needed to succeed in introductory financial accounting while ALEKS for the Accounting Cycle provides a detailed, guided overview through every stage of the accounting cycle. For more information, visit the ALEKS website at www.business.aleks.com. PageOut PageOut is McGraw-Hill’s unique point-and-click course website tool. With PageOut, you can post your syllabus online, assign McGraw-Hill Online Learning Center or eBook content, add links to important off-site resources, and maintain student results in the online grade book. PageOut is free for every McGraw-Hill/Irwin user and, if you’re short on time, we even have a team ready to build your site from scratch! You can also use PageOut content with WebCT, eCollege.com, or Blackboard. To learn more about these digital solutions, visit www.mhhe.com/solutions. Knowledge Gateway Developed with the help of our partner Eduprise, the McGraw-Hill Knowledge Gateway is an all-purpose service and resource center for instructors teaching online. While training programs from WebCT and Blackboard will help teach you their software, only McGraw-Hill has services to help you actually manage and teach your online course, as well as run and maintain the software. To see how these platforms can assist your online course, visit www.mhhe.com/solutions. And remember: All Libby digital content is easily incorporated into any online course management system. XV Supplements for the Instructor Online Learning Center www.mhhe.com/libby5e See page (XIV) for details. Instructor’s Resource Manual ISBN 978-007293126-6 (ISBN 0072931264) Prepared by Kathryn Yarbrough at University of North Carolina-Charlotte. All supplements, including the Test Bank, Videos, Study Guide, and PowerPoint slides, are topically cross-referenced in the IRM to help instructors direct students to specific ancillaries to reinforce key concepts. Transparency masters of text exhibits are included. Electronic files are available on the website. PowerPoint Slides Prepared by Jon Booker and Charles Caldwell at Tennessee Technological University and Susan Galbreath at David Lipscomb University. Completely customized PowerPoint presentations for use in your classroom. They are available on the Instructor CDROM and the website. Solutions Acetates ISBN 978-007293124-2 (ISBN 0072931248) These overhead transparencies provide both in-class visuals as well as solutions to most of the end-of-chapter material. Test Bank (Print version) ISBN 978-007293119-8 (ISBN 0072931191) Prepared by Anne Clem at Iowa State University. This comprehensive Test Bank includes more than 3,000 true/false, multiple choice, essay, and matching questions, including questions on ratios and ethics which meet requirements of AACSB Standards on Assurance Learning. XVI EZ Test McGraw-Hill’s EZ Test is a flexible and easy-to-use electronic testing program that allows instructors to create tests from book-specific items. EZ Test accommodates a wide range of question types and allows instructors to add their own questions. Multiple versions of the test can be created, and any test can be exported for use with course management systems such as WebCT, BlackBoard, or PageOut. EZ Test Online is a new service that gives instructors a place to easily administer EZ Test-created exams and quizzes online. The program is available for Windows and Macintosh environments. Instructor Excel Templates These Excel Templates allow students to develop important spreadsheet skills by using them to solve selected end-of-chapter assignments. They are available on the Instructor CD-ROM and on the website. x e cel n Ge Solutions Manual ISBN 978-007293120-4 (ISBN 0072931205) Prepared by Robert Libby, Patricia Libby, and Daniel Short. Provides solutions for end-of-chapter questions, mini-exercises, exercises, problems, and cases. Electronic files are available on the website. Algorithmic-Diploma Testbank (from Brownstone) ISBN 978-007321661-4 (ISBN 0073216615) Add and edit questions; create up to 99 versions of each test; attach graphic files to questions; import and export ASCII files; and select questions based on type, level of difficulty, or learning objective. This software provides password protection for saved tests and question databases and is able to run on a network. er al r wa e Instructor CD-ROM ISBN 978-007293130-3 (ISBN 0072931302) This integrated CD-ROM allows you to access most of the text’s ancillary materials. You no longer need to worry about the various supplements that accompany your text. Instead, almost everything is available on one convenient CD-ROM: PowerPoint slides, Solutions Manual, Instructor’s Resource Manual, Test Bank and Computerized Test Bank, Annual Report Cases Templates, Excel Templates for the end-of-chapter material (along with a guide), text exhibits, video, and links to the web. L ed ger Soft Carol Yacht’s General Ledger and Peachtree Complete CD-ROM See page (XIV). Check Figures Prepared by Paula Miller at Collin County Community College, provide answers to selected problems and cases. These figures are available on the book’s website. Instructor’s Manual to Accompany the MBA Companion Supplement ISBN 978-007293132-7 (ISBN 0072931329) Prepared by Peggy Bishop Lane and Catherine Schrand, both of The Wharton School at the University of Pennsylvania. The MBA Companion includes expanded material on leases and deferred taxes. Instructor’s Manual to Accompany Understanding Corporate Annual Reports by William R. Pasewark ISBN 978-007310182-8 (ISBN 0073101826) Financial Accounting Video Library ISBN 978-007237616-6 (ISBN 0072376163) Created to stimulate classroom discussion, illustrate key concepts, and review important material. Selected videos were produced by Dallas TeleLearning of the Dallas County Community College District ©1999. To acquire Accounting in Action as a Comprehensive Telecourse package, call Dallas TeleLearning at 1-866-347-8576 or visit its website at http://telelearning.dcccd.edu. Supplements for the Student x e cel Topic Tackler Plus DVD ISBN 978-007293129-7 (ISBN 0072931299) See page (VI) for details. Student Excel Templates These templates are tied to selected end-of-chapter material and are available on the website. Online Learning Center www.mhhe.com/libby5e See page (XIV) for details. Telecourse Guide ISBN 978-007293118-1 (ISBN 0072931183) This guide accompanies the instructional videos produced by Dallas County Community College and has been revised for the fifth edition. MBA Companion ISBN 978-007-293131-0 (ISBN 0072931310) Prepared by Peggy Bishop Lane and Catherine Schrand, both of The Wharton School at the University of Pennsylvania. This supplement includes expanded material on topics prominent in MBA-level programs, including leases and deferred taxes. Working Papers ISBN 978-007293122-8 (ISBN 0072931221) Prepared by Robert Libby, Patricia Libby and Daniel Short. Contains all the forms necessary for completing end-of-chapter assignments. Study Guide ISBN 978-007293121-1 (ISBN 0072931213) Prepared by Jeannie Folk of College of DuPage. An outstanding learning tool, this guide gives students a deeper understanding of the course material and reinforces, step by step, what they are learning in the main text. PowerPoint Notes ISBN 978-007326269-7 (ISBN 0073262692) Selected PowerPoint slides are reproduced for students in a handy booklet, allowing them to focus on the lecture and selectively annotate the slide rather than scramble to recreate it themselves. Understanding Corporate Annual Reports by William R. Pasewark ISBN 978-007310181-1 (ISBN 0073101818) This financial analysis project emphasizes the interpretation and analysis of financial statements. It contains extensive instructions for obtaining an annual report from a publicly traded corporation. Students gain hands-on experience working with annual reports and are then better prepared to understand financial accounting concepts and their use in the business world. Computerized Accounting Practice Sets Business simulations and practice sets using Windows by Leland Mansuetti and Keith Weidkamp of Sierra College include: Granite Bay Jet Ski, Level 1 ISBN 978-007296762-5 (ISBN 0072947624) Granite Bay Jet Ski, Level 2 ISBN 978-007308016-1 (ISBN 0073080160) Wheels Exquisite, Inc. ISBN 978-007242845-2 (ISBN 0072428457) Thunder Mountain Snowmobile ISBN 978-007293188-4 (ISBN 0072931884) Gold Run Snowmobile, Inc. ISBN 978-007295788-4 (ISBN 0072957883) XVII Acknowledgments Over the years many dedicated instructors have devoted their time and effort to help us make each edition better. We would like to acknowledge and thank all of our colleagues who have helped guide our development decisions for this edition and all previous editions. This text would not be the success it is without the help of all of you. Fifth Edition Reviewers Nas Ahadiat, California Polytechnic University Vern Allen, Central Florida Community College Bridget Anakwe, Plattsburgh State University of New York Brenda Anderson, Boston University Joseph Antenucci, Youngstown State University Laurel Barfitt, Delta State University Daisy Beck, Louisiana State University John Bedient, Albion College Eric Blazer, Millersville University Mark Bradshaw, Harvard Business School Christopher Brandon, Indiana University-Purdue University Columbus Nina Brown, Tarrant County College Helen Brubeck, San Jose State University Terri Brunsdon, The University of Akron Kay Carnes, Gonzaga University Kam Chan, Pace University Chiaho Chang, Montclair State University Gretchen Charrier, University of Texas-Austin Agnes Cheng, University of Houston Antoinette Clegg, Palm Beach Community College Anne Clem, Iowa State University Judy Colwell, Northern Oklahoma College Teresa Conover, University of North Texas Marcia Croteau, University of Maryland-Baltimore Elizabeth Demers, University of Rochester Allan Drebin, Northwestern University Virginia Fullwood, Texas A&M University-Commerce Joseph Galante, Millersville University of Pennsylvania Jeffrey Haber, Iona College Leon Hanouille, Syracuse University Russell Hardin, Pittsburgh State University Shelia Hardy, Lafayette College Betty Harper, Middle Tennessee State Ann Ownby Hicks, North Park University Marc Hyman, University of California at Berkeley Courtland Huber, University of Texas-Austin Norma Jacobs, Austin Community College Scott Jerris, San Francisco State University Carol Johnson, Oklahoma State University Shondra Johnson, Bradley University Christopher Jones, George Washington University John Karayan, Cal Poly Pomona Beth Kern, Indiana University—South Bend Dennis Lee Kovach, Community College of Allegheny Tammy Kowalczyk, Western Washington University Janet Kimbrell, Oklahoma State University Charles Ladd, University of St. Thomas XVIII Terry Lease, Sonoma 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Previous Edition Reviewers Dawn Addington, University of New Mexico Anwer Ahmed, Syracuse University Matthew Anderson, Michigan State University Richard Anderson, Stonehill College William Appleyard, Salem State College Susan Armstrong, Inver Hills Community College Stephen Kwaku Asare, University of Florida Holly Ashbaugh, University of Wisconsin Wendy Bailey, University of Pittsburgh Roderick Barclay, University of Texas—Dallas Cecil Battiste, El Paso Community College Paul Bayes, East Tennessee State University D’Arcy Becker, University of New Mexico Linda Bell, William Jewell College Martin Birr, Indiana University at Indianapolis Eric Blazer, Millersville University Robert Bloom, John Carroll University Charles Bokemeier, Michigan State University Wayne Boutell, University of California at Berkeley Ken Boze, University of Alaska—Anchorage Daniel Brickner, Eastern Michigan University Russell Briner, University of Texas—San Antonio Kevin Brown, Drexel University David Byrd, 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Hood Community College Kathy Horton, University of Illinois at Chicago Marge Hubbert, Cornell University Richard Hulme, California State University—Pomona Afshad Irani, University of New Hampshire Sharon Jackson, Samford University Christopher Jones, George Washington University Jefferson Jones, Auburn University Naida Kaen, University of New Hampshire Susan Kattelus, Eastern Michigan University Howard Keller, Indiana University at Indianapolis Cindi Khanlarian, University of North Carolina/ Greensboro Sungsoo Kim, Rutgers University Charles Klemstine, University of Michigan John Koeplin, University of San Francisco Michael Knapp, University of Oklahoma Frank Korman, Mountain View College Linda Kropp, Modesto Junior College Jim Kurtenbach, Iowa State University David Lavin, Florida International University Donald Leonard, Nichols College Cynthia Levick, Austin Community College Seth Levine, University of Miami Elliott Levy, Bentley College Lawrence Logan, University of Massachusetts— Dartmouth Gina Lord, Santa Rosa Junior College Joan Luft, Michigan State University George Machlan, Susquehanna University Ron Mannino, University of Massachusetts—Amherst David Marcinko, University at Albany—SUNY Bobbie Martindale, Dallas Baptist College Dawn Massey, Fairfield University Alan Mayer-Sommer, Georgetown University Paul McGee, Salem State College Noel McKeon, Florida Community College Betty McMechen, Mesa State College Bharat Merchant, Baruch College Greg Merrill, California State University at-Fullerton Alfred Michenzi, Loyola College Paul Mikalek, University of Hartford Ronald Milne, University of Nevada—Las Vegas Richard Muchow, Palomar College Dennis Murphy, California State University—Los Angeles Muroki Mwaura, William Patterson University Brian Nagle, Duquesne University Sarah Nutter, George Mason University Kanalis Ockree, Washburn University Emeka Ofobike, University of Akron Marge O’Reily-Allen, Rider University John Osborn, California State University—Fresno John O’Shaughnessy, San Francisco State University Ron Pawliczek, Boston College Kathy Petroni, Michigan State University Rosemarie Pilcher, Richland College Elizabeth Plummer, Southern Methodist University Margaret Pollard, American River College Peter Poznanski, Cleveland State University Don Putnam, California State University Polytechnic at Pomona Jeffrey Quirin, University of Wichita Mawdudur Rahman, Suffolk University Keith Richardson, Indiana State University Shirley Rockel, Iowa Wesleyan College Glenn Rechtshaffen, University of Auckland Anne Rich, Quinnipiac University Thomas Robinson, University of Alaska/Fairbanks Michael Ruble, Western Washington University Clayton Sager, University of Wisconsin—Whitewater Bruce Samuelson, Pepperdine University Shahrokh Saudagaran, Santa Clara University Gene Sauls, California State University—Sacramento Kenneth Schwartz, Boston College Richard Scott, University of Virginia Wayne Shaw, Southern Methodist University Franklin Shuman, Utah State University Mike Slaubaugh, Indiana University—Purdue University Ken Smith, Idaho State University Virginia Smith, St. Mary’s College William Smith, Xavier University Beverly Soriano, Framingham State College Ralph Spanswick, California State University-Los Angeles Kevin Stocks, Brigham Young University Iris Stuart, California State University—Fullerton Pamela Stuerke, Case Western Reserve University Kathryn Sullivan, George Washington University John Surdick, Xavier University Bill Svihla, Indiana State University Diane Tanner, University of North Florida Karen Taylor, Butte Community College Martin Taylor, University of Texas—Arlington Blair Terry, Fresno City College Laverne Thompson, St. Louis Community College at Meramec Ben Trotter, Texas Tech University Theodore Tully, DeVry Institute—Fremont Joan VanHise, Fairfield University Marilyn Vito, Richard Stockton College James Wallace, University of California—Irvine Nancy Weatherholt, University of Missouri—Kansas City Michael Welker, Drexel University Paul Wertheim, Pepperdine University T. Sterling Wetzel, Oklahoma State University L.K. Williams, Morehead State University Patricia Williams, Friends University Steven Wong, San Jose City College Gail Wright, Bryant College Suzanne Wright, Penn State University William Zorr, University of Wisconsin—Oshkosh Linda Zucca, Kent State University We are grateful to the following individuals who helped develop, critique, and shape the extensive ancillary package: Anne Clem, Iowa State University; Jeannie Folk, College of DuPage; Beth Kern, University of Indiana-South Bend; Barbara Schnathorst, The Write Solution, Inc.; Ann Selk, University of Wisconsin—Green Bay; Kimberly Temme, Maryville University; Katherine Yarbrough, University of North Carolina—Charlotte; Peggy Bishop Lane, The Wharton School at the University of Pennsylvania; Cathy Schrand, The Wharton School at the University of Pennsylvania; Jon Booker, Tennessee Technological University; Charles Caldwell, Tennessee Technological University; Susan Galbreath, David Lipscomb University; Jack Terry, ComSource Associates, Inc.; Deborah Jackson-Jones, Boardwork, Inc. XIX W e also received invaluable input and support through the years from present and former colleagues and students. We also appreciate the additional comments, suggestions, and support of our students and our colleagues at Cornell University, Ithaca College, and Texas Christian University. Last, we thank the extraordinary efforts of a talented group of individuals at McGrawHill/Irwin who made all of this come together. We would especially like to thank our publisher, Stewart Mattson; our senior sponsoring editor, Steve DeLancey; Kimberly Hooker, our senior developmental editor; Marc Chernoff, our marketing manager; Adam Rooke, our designer; Mary Conzachi, our lead project manager; Dan Wiencek, our copywriter; Sesha Bolisetty, our production supervisor; Elizabeth Mavetz, our media producer; Matthew Perry, our media project manager; Carol Loreth, our supplements coordinator; Jeremy Cheshareck, our photo research coordinator; and Emily Tietz, our photo researcher. Robert Libby Patricia A. Libby Daniel G. Short To Our Student Readers This book is aimed at two groups of readers: 1 Future managers, who will need to interpret and use financial statement information in business decisions. 2 Future accountants, who will prepare financial statements for those managers. Future managers need a firm basis for using financial statement information in their careers in marketing, finance, banking, manufacturing, human resources, sales, information systems, or other areas of management. Future accountants need a solid foundation for further professional study. Both managers and accountants must understand how to use financial statements in making real business decisions to perform their duties successfully. The best way to learn to do this is to study accounting in real business contexts. This is the key idea behind our focus company approach, which we introduce in the first chapter and which integrates each chapter’s material around a focus company, its decisions, and its financial statements. The focus companies are drawn from 12 different industries, providing you with a broad range of experience with realistic business and financial accounting practices. In each chapter, you will actually work with these real companies’ statements and those of additional contrast companies. When you complete this book, you will be able to read and understand financial statements of real companies. We help you achieve this goal by: 1 Selecting learning objectives and content based on the way that seasoned managers use financial statements in modern businesses. We emphasize the topics that count. 2 Recognizing that students using this book have no previous exposure to accounting and financial statements and often little exposure to the business world. We take you through the financial statements three times at increasing levels of detail (in Chapter 1, Chapters 2 through 5, and Chapters 6 through 14). This is the secret to our “building block approach.” XX 3 Helping you “learn how to learn” by teaching efficient and effective approaches for learning the material. Keep these learning hints in mind as you work your way through each chapter. 4 Providing regular feedback in Self-Study Quizzes, which occur throughout each chapter. Complete the quizzes before you move on. Then check your answers against the solution provided in the footnote. If you are still unclear about any of the answers, you should refer back to the chapter material preceding the quiz before moving on. 5 Highlighting the Key Terms in bold print and repeating their definitions in the margins. You should pay special attention to the definitions of these terms and review them at the end of the chapter. A handy glossary is provided at the end of the book; consult it if you forget the meaning of an important term. 6 Introducing the Key Financial Ratios used to assess different elements of financial performance at the same time you are learning how to measure and report those elements. These will show you what kinds of accounting information managers use and how they interpret it. At the end of each chapter, you can test what you have learned by working the Demonstration Cases. Working problems is one of the keys to learning accounting. Good luck in your first accounting course.